A good first step to a more flexible economy

Woolworths shareholders will be shaking their heads: how did it come to this? After more than six years of planning and execution, and more than $3 billion invested by the company and its US ally, the Masters experiment – Project Oxygen in the company’s optimistic management-speak – has now been abandoned.

Megastores around the country will be sold off and thousands of employees will lose their jobs. Decades of experience in retailing on two continents and almost bottomless pockets could not guarantee success. That’s capitalism for you.

Older forms of competition, as represented by Woolworths’ attempt to beat an established rival, seem to carry far more risk. Photo: Glenn Hunt

In 2009, the same year Woolworths was assembling its vast forces to take on Wesfarmers’ Bunnings, two entrepreneurs in San Francisco were preparing something quite new.

Uber, the car-sharing and taxi service based on a smartphone app they devised that year, was an almost instant success in their home city, and then progressively throughout the United States and across the world.

It launched in Sydney in 2012 and, being easier to use, more convenient and more transparent than conventional taxis (users know the identity of their driver, and can see where their nominated car is), quickly became a powerful competitor to a highly-regulated industry.

That, too, is capitalism for you. Last month it was estimated Uber was worth about $85 billion. That means the company has grown from nothing to almost three times Woolworths’ market capitalisation in the time it has taken the latter to lose $600 million on Masters.

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This being capitalism, there is no knowing which way Uber’s or Woolworths’ future trajectories will take them, but even so, the two stories illustrate clearly the present state of our economic system.

Whether Uber eventually succeeds or fails, disruption in the form of new applications of digital technology like its app can be relied on to continue contributing to innovation and to boosting growth.

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Older forms of competition, as represented by Woolworths’ attempt to beat an established rival in a finite market of long standing, seem by comparison to carry far more risk.

That is why the Baird government’s announcement that it will, in effect, embrace the innovation and economic renewal which new-technology companies such as Uber represent is so refreshing and so welcome.

The state government said several months ago it would legalise Uber’s ride sharing service. It did so despite entrenched anger in the traditional taxi industry towards the relatively unregulated, low-cost newcomer.

The traditional taxi industry has grown up with government regulations. Taxi licences until recently would change hands for hundreds of thousands of dollars. Some in the industry have viewed them as retirement investments. This has changed with the stroke of a pen.

Quite rightly the government has set aside a large amount to compensate licence holders. But the change, along with the other changes announced yesterday, was needed. Consumers will be better off for new competition between taxi systems.

Tuesday's changes were based on a review of the collaborative, or peer-to-peer, economy conducted for the government by Deloittes.

The internet has enabled consumers to deal directly with suppliers of goods or services of many different kinds, as passengers now deal directly with Uber’s drivers.

It makes it far easier for individuals to set up businesses from their home – without the need for offices or factories.

In other words, it encourages enterprise.

The review estimates that more than half of all consumers had tried peer-to-peer services or suppliers in the past year, and that the collaborative economy is now worth about $500 million to the state.

That will grow quickly. In this new and rapidly expanding economy, consumers still need protection, but that protection will have to take new forms.

Given the speed of change, no one can say how the new rules will differ from the old ones, but the five principles adopted by the government – to support innovation, to ensure regulation is fit for its purpose, to maintain consumer protection and safety, to promote competition, and to be agile in government procurement – appear to allow it enough flexibility to cope.

If Australia is to move decisively on from its role as the world’s mine and farm, this is the approach it will need.